When can a franchisee terminate the franchise agreement?

There are a number of circumstances under which a franchisee may terminate the franchise agreement and effectively end the franchise relationship.

These circumstances should be discussed with your franchise lawyer whenever you’re considering entering into a franchise agreement.

Cooling-off period

Under the Franchising Code of Conduct (the Code), the franchisee has 7 days, after having signed the franchise agreement, to exercise their cooling-off rights. This is the franchisee’s right to reconsider their initial decision to enter the Agreement. There are a number of notable limitations to this right; namely extensions of the term, renewal of the term; extensions of scope of the Agreement and transfers of the Agreement.

Early Termination (mutual agreement)

Another situation in which the franchisee is entitled to terminate the Franchise Agreement early is when the franchisor consents to the franchisee’s request for early termination. In some cases, the franchisor will permit early termination at the request of the franchisee without imposing too harsh a penalty or without imposing any penalty at all. Keep in mind, however that this will be solely at the discretion of the franchisor and should not be relied on.

Franchisor Breach

Another possibility is that the franchisor has breached an essential term of the Agreement that gives the franchisee a right to terminate. The franchisor must also have failed to remedy the breach within the permitted timeframe. Once there has been a breach of a fundamental/essential term by the franchisor, the franchisee is required, under the Franchising Code of Conduct, to notify the franchisor of the breach and giving instructions on how to resolve it. If this notice is ignored or not actioned within the specified timeframe, the franchisee may be entitled to terminate the Agreement early.

Common Law

Under common law, the franchisee may be entitled to early termination of the franchise agreement if any of the following occurs:

• The franchisor has frustrated the Agreement by stating that it does not wish to bound by its terms and conditions;
• A fundamental term of the Agreement has been breached by the franchisor; or
• There was a misrepresentation made to the franchisee as an inducement to enter the Agreement

It is so important to get the right legal advice as a franchisee to avoid facing the nasty consequences of wrongful termination. A franchise lawyer will be able to advise you on the franchisee’s rights.

Conclusion

It is difficult, at best, for a franchisee to terminate the franchise agreement early. If you believe you have reasonable cause to do so or want to know your rights, contact a franchise lawyer at LegalVision to discuss your concerns.